Chipmaker Nvidia’s earnings aren’t normally the biggest story in luxury. But this week, concerns about an AI bubble have reached a boil — with big implications for the key US market, whose resilience has been propping up luxury companies like LVMH throughout the current down-cycle and fuelling growth for outliers like Hermès and Richemont.
In this edition: the AI bubble, Kering’s leaked strategy memo, Prada-Versace nears the finish line, Dior taps Alaïa’s archive, highlights from BoF VOICES 2025.
AI Risk
What’s happening with AI and the US economy? Investor euphoria about the transformative potential of this technology is translating into a) a highly concentrated pile-in to the biggest tech stocks exposed to AI, and b) a massive infrastructure build-out to meet needs for hardware, data centres and energy.
AI-adjacent tech giants now account for one-third of the S&P 500’s valuation and a majority of the Nasdaq, meaning more or less anyone with a stock portfolio is exposed. The sector’s growth is almost singularly responsible for any pockets of wealth-driven “feel good” factor fuelling luxury demand in the US: 75 percent of returns in the S&P 500 have been concentrated in AI-linked stocks since the launch of ChatGPT in November 2022, JP Morgan analyst Michael Cembalest wrote in a recent note.
AI investment accounted for 92 percent of GDP growth in the first half of this year, Harvard economist Jason Furman said. That is to say, without AI the US economy is more or less flat.
Just because it’s big doesn’t mean it’s a bubble. The publicly-traded tech stocks benefitting from this year’s rally are mostly highly profitable companies in a way early “dot-com” stocks never were. But there are concerns about timing: in order to justify valuations, AI adoption will need to keep growing exponentially, with companies rolling out the technology throughout their organizations. End users will need to start paying handsomely for the technology — and fast enough for debt-funded bets on chips, data centres and power plants to meet their obligations to lenders before their hardware becomes obsolete.
Nvidia’s earnings Wednesday night will be even more hotly watched than usual. Bullish forecasts could add fresh fuel to the tech sector’s boom, whereas disappointing figures or a more cautious outlook could poke a hole in the bubble. Or neither: the debate on AI’s prospects has already prompted many investors to pull back in recent days — with the S&P 500 falling 3.7 percent this week and the Nasdaq by nearly 4.8 percent. Some prudence from the world’s first $5 trillion dollar company is likely already priced in.
In any case, the read-across for luxury is significant with the holiday shopping season in full-swing. US customers — the industry’s most resilient client base in recent years — are particularly sensitive to what’s going on in the stock market. (In China, by contrast, the prevailing wisdom has it that wealthy customers are more sensitive to property values).
US customers made up 24 percent of luxury goods sales in 2024, according to UBS. Sales to US buyers are expected to rise 2 percent this year, compared to a 6 percent drop for Chinese customers.
Kering’s Leaked Strategy Memo
A strategy memo that was circulated to top Kering executives around the time of new CEO Luca De Meo’s arrival in September was leaked online Tuesday, appearing on Panorama and authored by the group’s long-time adversary Carmine Rotondaro (who helped develop, then blew the whistle on, Italian brands’ once-popular scheme to reduce their tax exposure by shifting activities to Ticino, Switzerland).
The memo, of which BoF has since managed to see an official summary as well as the unsanctioned full text, appears to be a lengthy, blunt diagnosis of Kering’s shortcomings across pricing and sell-through, retail networks, speed to market, portfolio management and more.
It’s full of very unfavourable benchmarking against Kering’s top rivals like LVMH, Hermès and Chanel. That comparison was certainly relevant for Gucci at its height. Elsewhere in the portfolio one might note that Kering’s houses were, until recently, small and mid-sized fashion brands which only recently became global luxury names, compared to French luxury stalwarts which tap into fashion to generate buzz. As such, it may be more accurate to compare the long-term performance of YSL or Balenciaga to LVMH’s Givenchy than to the group as a whole.
The memo proposes a more tightly coordinated strategy, including top-down budgeting guidelines and a committee to review major investments at the group level. This is an interesting shift: the success of LVMH has been powered by a mix of consistent investment across brands and, on the other hand, big bets with the potential to move the needle for brands, signed off from the top. Think Hedi Slimane’s costly, top-down revamp of Celine, or Louis Vuitton’s steamer-shaped Louis flagship in Shanghai.
Kering may have taken a more laissez-faire approach to budgeting, trusting that its brand-by-brand segment reporting requirements would assure sufficient accountability. More buy-in from the top, with a dedicated committee for unlocking transformational investments, could help the group’s brands take on big projects without fear that they’ll be thrown under the bus with investors once they hit the bottom line.
The memo says brands need to urgently improve sell-through in mainline stores, depending less on outlets and other off-price channels to clear unsold stock. Pricing needs to be recalibrated taking the “real price” (including off-price channels) into account. Dynamic pricing in-season (a.k.a. sales) should be explored, the memo said.
Kering sources were quick to underscore that the memo in question was exploratory: the reflections of one early working group among many as the company prepares to formally present its strategy next year. Some action items, like the need to re-evaluate whether it’s possible to scale beauty without a partner, have since been overtaken by events (Interestingly, jewellery was grouped in with beauty on this point). Other observations, like the idea that most of Kering’s brands are very over-shopped and will need to shutter doors, were already hinted at in the group’s 3Q trading update.
Some interesting points on the timeline for Kering’s turnaround: In September, De Meo’s memo proposed restructuring, right-sizing and returning all brands to growth should take 18 months (with Gucci still targeting flat sales in 2026). By 36 months, top financial performance should be restored, brand positionings clarified and projects targeting category expansion underway.
Regaining the group’s status as luxury fashion’s “Undisputed Challenger” will take 60 months (five years).
Prada-Versace on the Finish Line
The Prada Group is set to complete its deal to buy Versace from Kors parent Capri in the first week of December. Then the work will really begin: onboarding Versace to Prada’s corporate and industrial platform while accelerating efforts to translate creative director Dario Vitale’s vision for the market — or else changing course. After a debut show that divided the internet, prevailing opinion among fashion people seems to lean in Vitale’s favour. But so far Prada’s top brass has given few signals they believe the former Miu Miu designer is right for the job.
“I don’t want to kill the patient while we cure it,” Prada Group CEO Andrea Guerra told Imran Amed at BoF’s VOICES gathering in Oxfordshire Wednesday. “At the beginning, stability is a very important word,” he said in response to a question on the future of the label’s creative and commercial leadership.
The company’s founding family will remain heavily involved with onboarding Versace via Lorenzo Bertelli — eldest son of Miuccia Prada and group chairman Patrizio Bertelli — who will lead the charge as Versace’s executive chairman, Guerra hinted. (The brand soon after confirmed that the appointment will happen as soon as the deal closes).
Tuning into BoF VOICES
Speaking of VOICES, it’s really worth tuning in to some of the talks if you’re able. The lineup is inspiring and informed, and our formidable production crew does an amazing job of capturing the action for the folks at home.
Some luxury highlights: The replay for today’s talks with Guerra and legendary futurist Li Edelkoort should be up by the time you receive this. Tomorrow morning from 10:30 BST, Tim Blanks interviews director Luca Guadagnino; art world luminaries Donatien Grau and Alvaro Barrington take the stage, the latter in conversation with former Art Basel director (and BoF’s art columnist) Marc Spiegler.
Dior x Alaïa
Azzedine Alaïa’s archives are a gift that keeps giving for Paris fashion since the creator’s 2017 passing. He left behind more than 22,000 garments spanning the history of Paris couture, a treasure trove so extensive that exhibitions exploring his own oeuvre as well as his research on Madame Grès, Balenciaga, Mugler and others have barely scratched the surface.
The latest revelation is an exhibition of more than 600 pieces of Christian Dior haute couture collected by Alaïa, on display from Thursday at Dior’s Galerie on Avenue Montaigne.
The show, curated by Olivier Saillard, is a broad-ranging, surprisingly representative survey of Monsieur Dior’s 22 haute couture collections despite being filtered through the lens of Alaïa’s own taste. Some common themes emerge: corsetry and pleats, a sculptural approach to silhouette, the veneration of women and the female form. Then there is the presence of floral motifs, prints, embroidery and other embellishments that rarely entered Alaïa’s own vocabulary, but for which he had quite an eye. The show is full of immaculately preserved specimens one rarely gets to see up close.
In addition to Monsieur Dior’s designs, there are also some looks for the house by Yves Saint Laurent, Gianfranco Ferré, Marc Bohan and John Galliano.
A companion exhibition is set to open at the Fondation Alaïa December 15, which will juxtapose more of the Dior pieces with Alaïa’s own work.